Answer-first summary for fast verification
Answer: 2%
The correct answer is **B** because the total return of an index includes both price appreciation and income (dividends). Here's the breakdown: 1. **Stock 1**: - Price return: ($8 - $10) / $10 = -20% - Total return: -20% + 2% (dividend) = -18% 2. **Stock 2**: - Price return: ($24 - $20) / $20 = 20% - Total return: 20% + 2% (dividend) = 22% 3. **Stock 3**: - Price return: ($30 - $30) / $30 = 0% - Total return: 0% + 2% (dividend) = 2% The equal-weighted index return is the average of the total returns: (-18% + 22% + 2%) / 3 = 2%. **Why not A or C?** - **A** ignores dividends, calculating only the price return, which averages to 0%. - **C** incorrectly suggests a 6% return, which is not supported by the calculations.
Author: LeetQuiz Editorial Team
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An analyst gathers the following information about an equal-weighted index composed of three stocks: Stock 1 begins at $10 and ends at $8, Stock 2 begins at $20 and ends at $24, and Stock 3 begins at $30 and ends at $30. If each stock provides a 2% dividend yield, the total return of the index is:
A
0%
B
2%
C
6%
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